1 Joint ventures and share farming
5.77 ‘Share’ farming is the phrase commonly used to denote an arrangement whereby the owner of land enters into a contract with a working farmer (or ‘share’ farmer), under which the latter carries on the day-to-day management of the farming enterprise, but without obtaining exclusive possession of the land (and hence a tenancy).
The twin objects of most share farming arrangements are to avoid the creation of a tenancy, on the one hand, while also precluding any implication of a partnership arising between landowner and share farmer. Where a partnership exists, the parties will be jointly and severally liable for all debts incurred, or tortious wrongs committed, by a partner acting in the course of the farming business. To achieve both objectives requires careful draftsmanship.5.78 Where the business involves livestock farming, the agreement will usually provide for ownership of the whole or part of the stock to be retained by the landowner. The physical presence on the holding of machinery and/or stock belonging to the landowner will prevent any implication that the ‘sharer’ has exclusive possession of land or buildings. The landowner contributes to the venture the land, buildings and fixed equipment on the holding, plus all or some of the stock; the share farmer puts in his expertise and labour, working machinery, and agrees to pay a share of input costs. The share farmer may also agree to pay a headage charge for the use of the fixed equipment on the holding. If arable farming is involved, more difficult considerations arise. Here it is common for growing crops expressly to remain the property of the landowner until severance, so as to defeat any claim that exclusive possession has been conferred. The harvested crop, or its proceeds, will then be shared in an agreed proportion. The agreement will commonly provide for the sharing of input costs such as seeds and fertilisers.
Whether the venture involves arable or livestock farming, provision may be made for a management charge to be paid to the share farmer, to cover his day-to-day management of the owner’s crops or livestock.5.79 Different considerations apply if a partnership is to be avoided. It must be clear from the agreement that the joint venture is between two separate and distinct businesses. To this end the payment of all inputs should be expressly allocated and provided for. Receipts must be allocated gross, in an agreed proportion, and not net of payments for inputs and/or expenses of the business. By virtue of s 1 of the Partnership Act 1890 a partnership will exist, whether the agreement provides otherwise or not, whenever two or more persons are carrying on a business ‘in common’ with a view to profit. The 1890 Act also provides, in s 2(3), that a sharing of net profits raises an implication of partnership. This latter must, therefore, be carefully avoided.
5.80 Short-term ventures could be mounted before 1 September 1995 by using the exceptions to protection set out in the 1986 Act itself, eg the exception for grazing lets and Gladstone v Bower tenancies. After 1 September 1995 short-term arrangements can be mounted using fixed term farm business tenancies for less than 2 years – with the added reassurance for the landowner that no statutory security can accrue to the occupier under the Agricultural Tenancies Act 1995.180 Share farming nevertheless remains a useful mode of arranging longer term joint ventures, without raising the possibility of unwittingly creating a tenancy.181
5.81 Perhaps the greatest danger inherent in such arrangements is that exclusive possession may, in fact, be granted to a share farmer. Although most agreements give the ‘sharer’ a licence to enter for the limited purposes of the business, if exclusive possession was in fact granted prior to 1 September 1995 then s 2 of the 1986 Act will have operated to elevate the licence into an annual tenancy.
After 1 September 1995 the effect of conferring exclusive possession will be to create a farm business tenancy. Following Street v Mountford182 it is clear that a grant of exclusive possession will give rise to a tenancy – whatever the parties themselves intend and whatever the agreement says. It is primarily a question of finding the true intention of the parties at the time of contract. If the parties to a purported share farming contract intended the sharer to have exclusive occupation, then notwithstanding the terms of the agreement a tenancy will have been created.5.82 Terms found not to express the true intention of the parties (eg, a denial of exclusive possession) will be disregarded as ‘sham’.183 In construing an agreement to ascertain whether it is a ‘sham’ the court is entitled to have regard to all the circumstances including, inter alia, the relationship between the parties and the subsequent conduct of the occupation.184 If a share farmer is allowed exclusive possession, there may be a difficulty in substantiating terms in the agreement to the contrary. Nevertheless, the courts have displayed a reluctance to overturn the terms of non-exclusive occupancy agreements, where clauses denying exclusive possession have an objective business rationale in a commercial transaction at arms length. So, in McCarthy v Bence185 a clause in a ‘share milking’ arrangement which allocated certain fields to the licensee for dairy use, but gave the landowner the right to move him (and the dairy operation) to other land within the holding was upheld. Although the share farmer had exclusive occupation of the fields in question (and had never been asked to move) he did not, on a true construction of the agreement, have the right to exclusive possession in a legal sense.186 Moreover, it might be difficult to establish the ‘sham’ nature of such clauses in commercial farm letting arrangements as this involves establishing that both parties regarded the terms as a pretence.187
5.83 Nevertheless, the parties must be advised that the terms of the agreement as to the sharing of occupation must be carefully adhered to, and its terms fully carried out. The possibility of exclusive possession being unwittingly conferred arises, chiefly, where livestock are involved, eg if the owner does not retain stock of his own on the land. Where arable cropping is in issue the whole crop normally remains vested in the owner prior to severance, thus precluding the possibility of exclusive possession being given the share farmer.188